Economics 3. [13 points in total] Income taxes treat nominal interest earned on savings as income even though much of the nominal interest is just to compensate for inflation. a. To see what this does to the incentive to save, complete the following table for both the low-inflation and the high-inflation country. (4 points) Low-inflation country High-inflation country Real interest rate 3% 3% Inflation rate 1% 10% Nominal interest rate Reduced interest due to a 20% tax After-tax nominal interest rate After-tax real interest rate b. In which country is there a greater incentive to save? Why? (1 point) c. What could the government do to eliminate this problem? (2 points) d. As a lender, which country would you like to lend? Why? (2 points) e. As a borrower, which country would you like to borrow? Why? (2 points) f. How do your answers in (d) and (e) change if the inflation rates in these two countries are unexpected? Why? (2 points)